Boards need to sign off Consumer Duty planning by October 2022

The FCA has confirmed today the new Consumer Duty rules – representing a fundamental change of consumer protection standards for financial services, and makes it clear that boards need to sign off Consumer Duty Planning by October 2022.

The new duty puts the onus on firm to assess and evidence that they are delivering good consumer outcomes, and is part of the FCA’s evolution into a more assertive and data-led regulator.

The headlines about the Consumer Duty are about a three-month deferral of the Go Live date until July 2023, with closed books given a further year until July 2024. But this disguises a very tight deadline for companies to agree their strategic response to the Consumer Duty, as Boards have to agree implementation planning by October 2022.

Those who prepare Board papers can forget about their summer holidays. This will involve not just the voluminous practical details of implementing the Consumer Duty, but also setting the tone at the top for the major culture change implicit in the Duty. The FCA’s expectations about how to treat consumers are familiar, but the difference is that this time firms will need to think good consumer outcomes through for themselves and own the consequences.

Companies will also need a plan to embed the Duty not just in the compliance and conduct teams, but across the organisation. This is to be underpinned by Consumer Duty-related changes to the responsibilities of all with SMF level responsibilities under the SMCR.

Critical path during the implementation period

27/07/2022:            Final rules published

31/10/2022:            Implementation plan approved by the Board

30/04/2023:            Review completed for all open products to identify gaps

31/07/2023:            Remediation activities completed on gaps identified

                                  New rules come into force

                                  Board to confirm compliance with consumer duty rules

By 31/07/2024:       Annual Board report on consumer duty

A large volume of preparatory work will be necessary. FCA will need to be persuaded that:

• Products meet the needs of those they are sold to;
• Both products and services offer fair value;
• Information provided enables them to make good decisions;
• Customers are supported so that they get the benefit of their products.

FCA have done some good practical thinking about what this means, and supplemented the rules with helpful examples and guidance, particularly on the treatment of fair value, responsibilities up and down the distribution chain, expectations on consumer support, and the approach to customer communications.

These outcomes cannot just be asserted. They will need to be demonstrated and documented.

Firms will need to collect extensive data, customer opinion surveys and management information to support this.

The whole strategy has to be carried forward through extensive monitoring reports to the Board. FCA will use their growing data management capabilities to supervise the Consumer Duty through these monitoring reports.

Governance and Culture

Our view is that these new rules is another attempt from the FCA to influence the culture and behaviours at Financial Services firm.

The final rules are bringing some new requirements around embedding the customer duty across the organisation with explicit references to strategies, governance, leadership, and people policies including performance and incentives at all levels.

Boards are going to have a central role to sign off implementation plans and to monitor extensively and sign off every year on how the firm is delivering good outcomes. An additional expectation is to have an Independent non-executive director becoming the Consumer Duty champion.

We recommend that the next phase of implementation should be supported by a proper top-down view of consumer duty across the organisation with an early buy-in from the Board.